Monetary Announcement Premium in China
72 Pages Posted: 8 Feb 2018 Last revised: 15 Apr 2019
Date Written: April 14, 2019
By studying China, this paper examines the stock market returns in an environment when the dates of information supply through public announcements are not pre-fixed. We document that excess returns on Chinese equity market accumulate for three days before its central bank PBOC releases data of monetary aggregates, which may be announced either early or late in a month. This pre announcement premium appears sizable, has a longer duration than that of the pre-FOMC premium in the U.S., and is not driven by potential data leakages or expectation changes. We then present a model to account for this premium by featuring investors' information demand given central bank's announcements are not pre-scheduled. As investors with limited attention find it optimal to learn about monetary data prior to announcement, increasingly devoted attention drives down market uncertainty and boosts up equity prices. We show the institutional details of China render the exact data structure for us to test the key model mechanism of uncertainty reduction, which helps rationalize the empirics found both for China and the U.S.
Keywords: Equity Premium, Monetary Policy, Announcement, Macro Finance
JEL Classification: E44, E52, G12, G14
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